Are we going to witness an historical housing price correction amid sharpest rise in unemployment and social tension?...and the minimum you should know in order to protect yourself from this downturn from an economic, stock market and political point of view... with a pinch of humor and sarcasm.

Monday, 14 April 2008

~4%

"Finland's inflation rate rose to 3.9 per cent in March, Statistics Finland reported in a statement on Monday. The inflation rate is increasing fast, as February's year-on-year figure for consumer price change was 3.7 per cent."

"Inflation was pushed up most in the year by risen prices of housing. The rise was due to higher prices of energy, risen housing loan interest rates and real estate prices as well as rent increases. Inflation was also pushed up by increases in the prices of food, automotive fuels, restaurant and café services and retail prices of alcoholic beverages from the year before."

Back in September, when i started this blog,I warned that prices were going out of control. Finnish Economist, politicians and banks didn't really think so when reading them through the news or statements. Those people are clearly behind the curve and were not able to predict the fact that inflation is now threatening the stability of our economy. The first casualties will be hard assets such as housing.

Indeed, high inflation if persistent would mean higher interest rates at some point while salary are pressured lower (something never experienced before).

You didn't have to be a genius to see that letting interest too low has created a period of unusually cheap credit that is now affecting the real economy globally through higher prices in any commodities : food, oil etc... in fact anything (except electronics , cars? maybe not as it's relatively expensive here in Finland)

Unfortunately for Finland, the ECB is targeting Germany, France and Italy inflation. Thus letting Finland on its own and most probably pushing it into a prolonged period of sluggish growth. The impact is going to be felt socially by raising tension toward immigrants, first casualties in a slowdown. It will be followed by loss of competitiveness if second round effect materialize plunging even deeper the slump.

Housing price were adjusted in 2003-2004 with the idea that we will live in a prolonged period of low interest rates. Imminent economist in Finland stamped that theory. Unfortunately it's all wrong. Globalization side effects were not taken into account in setting up this "perfect" scenario. So prices are indeed between 10% to 40% overvalued. And as the readers pointed out in the survey (on the right of the blog), prices could fall by 30% by 2010 which is getting more realistic as time goes.